words per minute
13
SamKumar
00:00
Speed
With the New Year bells ringing, good news is underway for India as its economy is poised to win back its tag of the fastest growing economy in the world. The recent upgrade of India’s rating by the US based credit rating agency Moody’s (Baa2 from Baa3) in recognition of the reforms agenda pursued by the Government is a major boost to investor confidence. Further, as the short term disruptions caused by major reforms such as the Goods and Services Tax (GST) and demonetization recede, the economy is on the rebound and is likely to achieve higher growth targets in the New Year. GDP GrowthGross Domestic Product (GDP) is on a recovery path after slowdown in the first quarter of 2017-18, and real GDP growth for the second quarter (2QFY18) increased to 6.3% from 5.7% in the previous quarter, a likely fallout of the introduction of GST. The second half of 2017-18 will witness a higher growth rate, and this is further expected to consolidate in the coming New Year, as the benefits of GST and other reforms gain traction.Sectoral GrowthThe agricultural sector registered moderate growth as erratic monsoon in several parts and flooding in some states impacted performance.Industrial growth accelerated sharply during the second quarter of FY 2018 and jumped to 6.9% from 1.5% in the previous quarter, on account of a sharp increase in manufacturing and electricity, gas, water supply and utility services. Manufacturing registered an impressive growth at 7% in 2QFY18 as compared to 1.2% posted in the first quarter.Services sector grew only marginally at 6.6% in the second quarter as compared to 7.8% in the previous quarter.InflationThe economy saw high inflation during October 2017 owing to elevated food prices. Going forward, this is likely to be contained on account of a good harvest and favourable monsoons.The impact of GST on prices is likely to become clearer in the coming year as the teething problems related to its implementation ease out. Further, the GST Council’s decision to cut tax rates on 177 items is also expected to partially ease the inflationary pressure, as the companies start passing the benefits of lower prices to consumers.External SectorHealthy foreign fund inflows caused the rupee to strengthen during the latter half of the year. The recent Moody’s upgrade is likely to encourage further inflows and the rupee could appreciate further. On the other hand, the impact of the decision in the US to raise interest rates and introduce tax cuts may work the other way. In any case, India’s consumer markets are expected to remain a strong incentive to FDI.A contraction in export growth pushed the merchandise trade deficit to a near 3-year high in October 2017, which was forcefully reversed in November with a positive growth rate of over 30%. With the streamlining of GST related issues and some changes in GST rules by the Government as well as firming of global recovery, export growth will emerge as a powerful growth driver in 2018.Monetary PolicyThe Reserve Bank of India (RBI) kept policy rates unchanged in its fifth bi-monthly monetary policy meeting on 6th December, 2017. However, industry is hopeful that going forward, RBI would lower interest rates to boost broad-based investment and consumption activity which in turn would promote economic growth.